Domestic Institutions, Geographic Concentration, and Agricultural Liberalization

One of the persistent obstacles to trade liberalization is a government’s inability to commit and deliver compensation to trade losers. We argue that constitutional structures interact with the geographic profiles of industries to shape a government’s ability to commit to a compensation contract , defined as an interbranch contract whereby an executive branch promises compensation in exchange for legislative support for ratification. Our theory predicts that parliamentary systems are more likely to liberalize and compensate geographically concentrated industries because party leaders enforce a contract with a smaller number of legislators. Presidential systems are more likely to liberalize and compensate geographically diffused industries because legislature enforces a contract with a larger number of legislators. Using novel product-level data on agricultural trade liberalization and remote-sensed cropland in 38 democracies, we find evidence consistent with our argument. Qualitative studies of the sugar industry and interviews with policymakers provide further evidence.